Item 2.01 Completion
of Acquisition or Disposition of Assets
As previously reported
by Heat Biologics, Inc. (“Heat”) in a Current Report on Form 8-K filed by Heat with the Securities and Exchange Commission
(the “SEC”) on December 21, 2021, Heat entered into an Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”) by and among Heat, Heat Acquisition Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of Heat (“Merger
Sub”), and Elusys Therapeutics, Inc., a Delaware corporation (“Elusys”), providing for, among other things, the merger
of Merger Sub with and into Elusys, with Elusys continuing as the surviving entity as a wholly owned subsidiary of Heat (the “Merger”).
On April 18, 2022 (the
“Closing Date”), Heat closed the Merger contemplated by the Merger Agreement (the “Closing”). Pursuant to the
Merger Agreement, as merger consideration (“Merger Consideration”) Heat paid at the Closing a cash upfront payment of $3,000,000
to certain of the equity holders of Elusys (the “Sellers”) and assumed and contributed $867,646 to the payment of 50% of
certain Elusys lease termination and employee severance payments. Heat will also pay to the Sellers (i) $2,000,000 at the same time as
the initial pass through revenue is distributed to the Sellers as described below and (ii) earn out payments for a period of 12 years
from the date of Closing equal to 10% of the gross dollar amount of payments received during each one year period during such twelve
year period with respect to any sale, license or commercialization anywhere in the world of Anthim that either: (a) occurs during the
first nine years after the Closing Date in any respect; or (b) occurs thereafter pursuant to any contract, agreement, commitment or order
that is placed, granted, awarded or entered into during the first nine years after the Closing Date.
In addition, Elusys
is expected to receive additional revenue from the future fulfillment of an existing U.S. Government contract and Heat has agreed to
fulfill the future obligations of Elusys under such contract and pass through and distribute to the Sellers the revenue that is received
under such contract minus the costs associated with such fulfillment obligations, subject to certain adjustments to the Merger Consideration
specified in the Merger Agreement, including income taxes payable with respect to such payments. The Merger Agreement further provides
that eighty percent of any amounts paid to and received by Elusys after the Closing and prior to June 30, 2023 with respect to the sale
of 1,500 pre-filled vials of Anthim shall be paid to the Sellers, subject to certain adjustments specified in the Merger Agreement. Heat
also agreed to use commercially reasonable efforts to maintain, finance, operate and promote Anthim and maintain the existing government
contract and to continue to operate the Elusys business so as to allow the Sellers to receive the Merger Consideration.
The Merger Agreement
contains customary representations, warranties and covenants of Heat, Elusys and the Merger Sub. Subject to certain customary limitations,
the Sellers have agreed to indemnify Heat and its officers and directors against certain losses related to, among other things, breaches
of Elusys’ representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under
the Merger Agreement.
Elusys is a private,
commercial-stage biopharmaceutical company that has achieved United States and international licensure in Canada, the United Kingdom,
and the European Union for its lead antibody therapeutic, Anthim® (obiltoxaximab), a medical countermeasure to treat patients following
anthrax exposure. Anthim is indicated for prophylaxis of inhalational anthrax due to B. anthracis when alternative therapies are
not available or are not appropriate. Anthim has been delivered to the US Strategic National Stockpile (“SNS”) as the result
of a successful, multi-year partnership with the U.S. government.
A Special Committee
of Heat’s Board of Directors negotiated and approved the transaction and Cassel Salpeter & Co. provided a fairness opinion
in connection with the transaction. Cassel Salpeter served as financial advisor to the special committee of Heat’s Board of Directors.
The foregoing
summary of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the
Merger Agreement that is filed herewith as Exhibit 2.1.
The representations,
warranties and covenants contained in the Merger Agreement were made only for purposes of such agreement and as of specific dates, were
solely for the benefit of the parties to the Merger Agreement, and may be subject to limitations agreed upon by the contracting parties.
Accordingly, the Merger Agreement is incorporated herein by reference only to provide investors with information regarding the terms
of the Merger Agreement, and not to provide investors with any other factual information regarding Heat, Elusys or either of their businesses,
and should be read in conjunction with the disclosures in Heat’s periodic reports and other filings with the Securities and Exchange
Commission.
About Elusys
Elusys is a
company focused on the commercialization of ANTHIM® (obiltoxaximab), which has received FDA approval and orphan drug exclusivity
for the treatment of inhalational anthrax due to Bacillus anthracis.
Elusys has
been awarded over $350 million in procurement and development contracts by the Biomedical Advanced Research and Development Authority
(BARDA), the National Institute of Allergy and Infectious Disease (NIAID) and the Department of Defense (DoD). Working closely with these
agencies, Elusys has been able to advance ANTHIM to the commercial stage providing a therapeutic for inclusion in the CDC’s Strategic
National Stockpile (SNS) to strengthen US biosecurity against a potential anthrax attack. ANTHIM was licensed for commercial use by the
FDA in 2016.
Elusys owns
or licenses five US patents related to obiltoxaximab, related antibodies, and methods of use. Certain of the patents are licensed from
the Board of Regents of the University of Texas System pursuant to the terms of a license agreement effective June 30, 2003 ( the “License
Agreement”) pursuant to which Elusys has been granted a fully paid royalty-bearing, exclusive license under the inventions and
discoveries covered by the Patent Rights ( as defined therein) to manufacture, have manufactured, use, sell and offer to sell Licensed
Products ( as such terms is defined in the License Agreement) worldwide in the Licensed Field (as such terms is defined in the License
Agreement). The term of the License Agreement is from the effective date to the end of the Patent Rights that have not expired; provided
that the License Agreement automatically expires if Elusys becomes bankrupt or insolvent and the licensor has the right to terminate
the License Agreement if Elusys is in default of payment: however, no further payments is due under the License Agreement, breach of
any provision of the License Agreement and fails to cure such breach within thirty days of notice thereof or Elusys fails to pay certain
expenses, which have been fully paid. The foregoing summary of the Merger Agreement does not purport to be complete and is qualified
in its entirety by reference to the full text of the License Agreement that is filed herewith as Exhibit 10.1.
Elusys was formed
in 1998 by Jeff Wolf, our President, Chief Executive Officer and Chairman of the Board of Directors, who directly and through affiliated
entities owns approximately 1.2% of the outstanding stock of Elusys, in the form of common stock, which is subordinate in terms of distributions
to the Elusys preferred stock. Due to the potential conflict of interest, Heat formed a Special Committee of its Board of Directors to
review and negotiate the Merger Agreement. However, pursuant to the terms governing the Elusys preferred stock, the preferred stockholders
of Elusys will receive all of the initial $5 million of Merger Consideration and all of the net payments from the $31 million of revenues
related to fulfillment of the existing SNS contract. While the amount of earn out payments, if any, to be made over the 12 year period
following closing is very uncertain, it also presently seems likely that most if not all of such payments will also be paid to the preferred
stockholders of Elusys under the terms of such preferred stock.